CCI and RSI are well-known momentum indicators mostly used in trend-following trading strategies. If you add the Stochastic Oscillator with these two indicators, you can also develop a strategy for determining market trends.
This guide will explain how to determine buy-sell signals using the CCI RSI Stochastic Strategy in MT4.
What is the CCI RSI Stochastic Strategy?
The Commodity Channel Index (CCI) is a prevalent momentum oscillator that can help identify whether the price is hitting an overbought or oversold zone. The Relative Strength Index (RSI) also provides overbought/oversold signals.
According to this strategy, we’ll consider a buy or sell opportunity when both RSI and CCI develop the same momentum signals.
After you get the momentum confirmation, check the Stochastic oscillator that compares a security’s most recent closing price to its highest and lowest prices over a given time period. It provides readings that oscillate (move) between zero and 100 to indicate the security’s momentum.
The CCI RSI Stochastic Strategy doesn’t develop a straightforward trade signal but can help you identify potential price levels while considering a market entry.
How to Trade CCI RSI Stochastic Strategy?
The CCI RSI Stochastic Strategy works best during on-trend market conditions. Once you spot a potential price-action signal or a solid candlestick pattern at a key price level, apply the strategy to examine whether the market is in an overbought or oversold condition.
During an overbought market, the CCI will reach above 100, the RSI will hit the 70 level, and the Stochastic value will exceed 80. Oppositely, the CCI at -100, RSI at 30, and Stochastic rebounding from 20 indicate an oversold market.
Please note that the Stochastic oscillator also uses crossovers between its %K and %D lines, indicating bullish or bearish momentum.
Here are the buy rules of the strategy:
- Price rejects a trendline or horizontal support.
- A bullish breakout occurs at a key resistance.
- CCI value moves below -100.
- RSI hits 30.
- Stochastic value rebounds from 20 with %K above %D.
Here are the sell rules of the strategy:
- Price rejects a trendline or horizontal resistance.
- A bearish breakout occurs at a key support.
- CCI value moves above 100.
- RSI hits 70.
- Stochastic value rebounds from 80 with %K below %D.
CCI RSI Stochastic Strategy Pros & Cons
- The strategy has been created using built-in MT4 indicators and doesn’t require external downloads.
- Can generate consistent momentum signals in trend-following markets.
- Its triple momentum strategy portrays an accurate picture of price trends.
- Applicable to multi-timeframes.
- Doesn’t show dynamic/fixed support/resistance levels.
- Requires good money management and trader discipline.
The CCI RSI Stochastic Strategy is an ideal solution for beginner-level technical traders who depends on momentum analysis while deciding on a trade entry or exit. You can apply it on any forex and stock charts and simultaneously check the market condition in different timeframes. Before considering a trading opportunity, remember to crosscheck the momentum signals using CCI, RSI, and Stochastic. Also, you can add moving averages and support/resistance levels for better trading accuracy.
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